HINDUSTAN MOTORS TURN AROUND STORY

Overview
Hindustan Motors manufactures Utility Vehicles, Passenger Cars, Earthmoving Equipment and other power products The company was the largest car manufacturer in India before the rise of Maruti Udyog (MUL). First to start car production in india in 1942 Landmaster production in 1954. Ambassador in 1957. Tie-ups with General Motors Corporation of USA, Vauxhall Motors, UK, Marion, Power Shovel Co, USA led to new products being launched. In 1963 commenced the production of the Ambassador Mark Later versions and more forays in related vehicle segments followed. One of the original three car manufacturers in India, founded in 1942, it was a leader in car sales until the 1980s, Hindustan has a joint venture with Mitsubishi, producing versions of the Lancer and Pajero, but is best known for its own models.

Overview
Quick Flash
F ounder Country Year of Establishment Business Group W ebsite B.M. Birla India 1942 CK Birla Group www.hindmotor.com

Segment & Brands of Hindustan Motors

Ambassador Mitsubishi Montero Mitsubishi Cedia Mitsubishi Pajero Mitsubishi Lancer

Plants:

Tiruvallur (Chennai) Mitsubishi Lancer cars in technical collaboration with Mitsubishi Motors, Japan Uttarpara (Kolkata) Passenger Cars:Ambassadors, Contessa, & Multiutility Vehicles -Trekker, Porter & Pushpak. Pithampur (Indore) "RTV" brand of multiutility vehicles in technical

Evolution of Automobile Industry 80s.00s

Initial Years Manufacturing was licensed License Raj High Customs duty on import Steep excise duties & sales tax 2 Major players: Premier Automobiles Ltd & Hindustan Motors 1980s Entry of MUL, better product, with government support Sellers Market Long Waiting Periods

Early to mid 90s Sellers market and long waiting periods Decrease in customs & excise Auto finance boom- more players foreign banks & non banking companies, better schemes.

Mid 90s Early 2000s Buyers market Easy Auto finance Manufactures diversifying into related activities: finance lease, fleet management, insurance and used car market But HM diversified very lately compared to all other companies

The 80s

Until the 1980s, only 2 care available in Indian Market Ambassador and Premier Automobiles Ltds (PAL) Padmini. Ambassador was the vehicle of choice, Government of India, and the official car for almost every Indian Prime Minister after independence. There was no executive order that the government departments have to buy only ambassador cars. Still all were buying as a prestige to own it. HM derived a major part of its sales from senior politicians, top civilians, bank managers and defense personnel. Ambassador was very popular in the taxi segments as well, accounting up to 65% of ambassador sales in 2001. Till the early 1980s, Ambassador commanded more than 70% of the market share.

MULs Entry 1981

The Old Amby had to be taken to workshop after delivery for re-welding and other modifications for the basic driving situation. During early 80s delivery of Amby usually takes a span of 6 months to 1 year for delivery. In 1981 with the entry of MUL, the scenario changed drastically, MULs small fuel efficient and well designed car, Maruti 800, became a huge success. By the late 1980s MUL became the market leader, leaving Hindustan Motors way behind in the market share. HM premium segment market share were being eaten up drastically by MUL and Honda. Mostly due to advertising and effective marketing strategies of the competitors

The Key PlayersCar Segment by year 2k

Passenger vehicle

By the year passing, HMs market share went low and was considered as others in the segment
TATA Motors, Ashok Leyland, Swaraj Mazda,Mahindra & Mahindra ,Force motors, Eicher Motors TATA Motors, Maruti Udyog, Honda Motors, Toyata, Skoda, Mahindra & Mahindra, Hindustan Motors

Commercial vehicles Passenger vehicle

Trends in the automobile sector2k

Production of automobiles
10 million numbers 8 6 4 2 0 2000-01 2001-02 2002-03 2003-04 2004-05 4.8 5.3 6.3 7.2 8.5
million numbers 10 8 6 4 2 0

Domestic Sales of automobiles

4.6

5.2

5.9

6.8

7.9

2000-01 2001-02 2002-03 2003-04 2004-05

Exports of automobiles
0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 0.63 0.48 0.31 0.17 0.18

Exports have nearly tripled in the years HM was unable to hold position in market due to their drop in marketing strategies

million numbers

Domestic Sales have been growing strongly

2000-01 2001-02 2002-03 2003-04 2004-05

Environment Analysis
Threat of Substitute: HM was focused only to one segment till 1997 Within the company also lead to downfall of the company and ultimately leading to less market share. Eg. Internal Problems, Union problems etc Most of the manufacturing divisions are closed, the land & machineries have been sold or shifted Surprisingly HM never gave any dividends to its shareholders. HM strategy failed : Sufficient attention is not paid to the people development dimension. HR problems that arise when executing strategies were of the causes below: Failure to match individual goals and organizational goals. Failure to match individuals aptitudes with implementation tasks. Inadequate top management support for

Steps towards Turnaround

Indian economy opened up for foreign players, many multinational automobile companies entered the country. Companies including Daewoo, GM, Daimler Benz, Hyundai, Hondaentered India through joint ventures (JV) and partnerships with Indian firms. HM was the worst affected due to inflow of competitors. Forced to react due to its poor performance of its vehicles. Company also appointed consultants McKinsey & Co. for a restructuring plan to turn around its business Mckinsey & Co. findings: Asked HM to focus on the marketing of components Refurbish the Ambassador model and upgrade other vehicles Speed up the delivery process and improve productivity through re-engineering on the floor shop. Reduce the workforce in its production plant at Uttarpara

Company started implementing the recommendations)

Turnaround Efforts
HM decided to tap new segments to ease the competitive pressures from other giants HM collaborated with Oka Motor Co. to develop targeting at rural markets. Launched Trekker (Rural Transport Vehicle)1995 in 3 northern states. 1998, Trekker sales dropped by two thirds of its initial volumes to around 800 a year. 1999, HM launched the redesigned Trekker and an upgraded version of the amby. All restructuring and efforts could not sustain in market for a longer time, there was high decline in sales. HM invested around INR 750 million to modernize the assembly line, building new body and paint shops and even purchased new equipment. Cost Cutting Measures: Company also embarked on a cost cutting exercise and announced a Voluntary Retirement

Turnaround Efforts - II
HM decided to look beyond its existing portfolio to come out of its problems. New Business ventures:

HM entred into Collabration with Mitshubishi Motors, Japan in 1998 for manufacture of parts & transmission. HM tie-ups with General Motors Corporation of USA, Vauxhall Motors, UK, Marion Power Shovel Co, USA led to new products being launched. HM entered into an agreement with Mahindra and Mahindra for developing petrol engine for M&M vehicles.

Change in Distribution Networks: 1999, HM unveiled a new distribution system, wherein dealers where divided into three tiers

Red tier catered to the metros for lancers Blue tier catered to the semi urban areas for Contessas and Ambassadors Green tier to rural markets for Trekkers.

Exporting Era: 2001, HM also decided to explore the overseas markets for its products Cutting down the diversification / Cost benefit Analysis/ Measures Effective Utilization of Internet resources.

HM had invested Rs 2.5 million in the software Customers could choose the car color, the interior, accessories

Turnaround Effect
2001,Click Business. 2001 February, HM sold its earthmoving equipment to Caterpillar Inc. (CAT) for Rs 3.3 Billion.
After the deal HM was able to bring down its high interest debts It helped reduce gross loss to Rs 152.2 million from Rs 255.5 million in the corresponding quarter of 1999-00.

After the launch of the service, Lancers market share had gone up by 4%. Export has been steadily increasing, mainly in the British and Japanese markets Over a period of time, sales from auto components could be as high as 30-40% HM also managed to secure an export order for 300 petrol engines from a UK based company
1998 1999 2000 2001

Sales value (Rs in Mn) Commercial Vehicles 7,376.20 8,005.1 12,768.4 12,358.9

Future Plan
Hindustan Motors planned to launch Mitsubishi's small-car model iCar in India by the end of 2009. Indian passenger vehicle market is forecast to nearly double to 2m units in annual sales by 2010. GM and Hindustan Motors are toying with the idea of introducing CNG as a fuel option in order to boost sales. Mitsubishi source components through partner Hindustan Motors will prove beneficial for Mitsubishi With this HM possibly would be able to use some of its idle capacity and shore up its bottom line. Opportunities:
Efficiency through management principles Exports Acquisitions for strengthening its distribution tie-ups. Entry into other related diversification categories Can bring out more sophisticated cars with high technology standards

Threats:
Emergence of strong players in the market Lack of employee motivation Lack of design for cars (mainly new age look for cars)